To support the current strong uptick in credit growth, bank deposit rates are expected to remain at elevated levels for a few months, say experts..
The reason for this is that year-on-year (y/y) credit growth is outpacing deposit growth. As on August 25, 2023, the y/y credit and deposit growth was 19.39 per cent and 12.93 per cent, respectively, per RBI data.
So, to narrow this gap, banks may either continue with the current attractive deposit rates for a longer period or nudge them up further.
CARE Ratings, in a note, said: “It is anticipated that net interest margins will contract during the current fiscal year, primarily due to the escalation in deposit rates. Despite the Monetary Policy Committee hitting pause, banks have continued to raise interest rates on their existing loan portfolios.
“A reduced level of systemic liquidity is expected to exert upward pressure on money market rates, contributing to the containment of inflationary pressures.”
Banks’ term deposit rates of greater than one year duration rose to 6.00-7.25 per cent range as on September 1, 2023 against 5.30-6.10 per cent as on September 2, 2022, per RBI’s weekly statistical supplement.
“At this point of time, there is a war between the banks to get that slice of saving which is there in the system. Deposit rates are anyway at elevated levels. But they seem to be stabilising at the current level,” said the treasury head of a private sector bank.
Kotak Securities analysts, in a report, observed that deposit mobilisation patterns need monitoring as the competitive intensity is high, given the limited headroom available for private banks as well as the recent merger of HDFC group where the demand for deposits is high.